Stocks

  • 19 Jun
    Stocks VS Real Estate: Bubbles Or Investments?

    Stocks VS Real Estate: Bubbles Or Investments?

    • It could be argued that both stocks and real estate are in a bubble. However, the game is the same, finding a quality stock or piece of real estate at a low price is crucial for long term returns.
    • Low interest rates have inflated asset values and net household wealth, and a return to the average would be detrimental for the economy. It’s unlikely this would be allowed, but there will be volatility.
    • In the case of higher inflation, a 30-year fixed-mortgage real estate investment doesn’t look bad at all.

    Introduction

    I was struck when I read a while ago that the Obamas purchased a home in DC for $8.1 million.

    I wasn’t struck by the purchase price as the former president will probably make more than that from speeches in a year, but what struck me was that the same house was previously sold for $5.3 million in 2014. Thus in less than three years, the house appreciated 52%. Also worth mentioning is the fact that the house first sold for $50,000 in 1928. More →

  • 12 Jun
    Stocks, Bonds, & Gold, Oh My! What’s The Safest Asset Class Today?

    Stocks, Bonds, & Gold, Oh My! What’s The Safest Asset Class Today?

    • In his search for safety, the average investor usually does it all wrong.
    • Stocks, bonds, real estate, gold, and cash will all probably drop more than 70% once in your lifetime.
    • However, there is an asset class that is much safer and will lead to huge returns, Buffett would call it a “bet on America.”

    Introduction

    When I talk to people that aren’t as obsessed about investments as I am, a word that I constantly hear is “safety.” Everybody wants to do something with their capital without risk and they are in a constant inner fight related to their money and what to do with it. More →

  • 09 Jun
    Want To Know About The Current State Of The Market? Read This.

    Want To Know About The Current State Of The Market? Read This.

    • A quick look at the economy points out a few risks, but there are also some positives.
    • Unfortunately, savers have gotten the short end in this environment, but average investors haven’t done much better either.
    • It’s important to understand what’s going on and how will it affect your long-term returns. If you only think about the short term, your returns will be below average, thus below 2.3% per year.

    Introduction

    J.P.Morgan (NYSE: JPM) recently released its Q2 2017 Guide To The Markets. As this report is very long, with a total of 71 slides and a lot of correlation charts, I’ll take out the most important things an investor should know about the current state of the markets and the economy. More →

  • 05 Jun
    Why You Should Be Careful When You’re Told To Have A Defensive Portfolio

    Why You Should Be Careful When You’re Told To Have A Defensive Portfolio

    • Defensive investments are usually promoted to those in retirement or close to it. However, we should all always be defensive investors.
    • Neither bonds nor general stocks are defensive investments, no matter the diversification or quality of the bonds.
    • Cash is the only defensive investment in this market. Other options are positive asymmetric risk reward investments.

    Introduction

    Many will say that a portfolio owned by an investor who is about to retire or is retired should be a defensive one. However, I find focusing on age isn’t smart because no matter our age, we have to always protect our portfolio and try to maximize returns. After all, isn’t the first rule of investing to never lose money while the second rule of investing tells us to read rule number one again? More →

  • 02 Jun
    Should You Follow What Hedge Fund Managers Are Doing?

    Should You Follow What Hedge Fund Managers Are Doing?

    • I’ll describe in detail how you can follow hedge fund managers.
    • It’s very important to understand the risk reward profile of the fund manager.
    • Following allows us to find great investment ideas, but there are also big traps.

    Introduction

    Every fund has to disclose its portfolio to the SEC quarterly in a 13F form which allows us to track hedge fund managers’ portfolios. It’s easy to track what George Soros, David Tepper, Seth Klarman, Dan Loeb, Carl Icahn, David Einhorn, Bill Ackman, Warren Buffett, and many, many other interesting investment stars have been doing. The data is usually disclosed 45 days after the end of the quarter, but nevertheless shows what these guys have been doing.

    When you see the research power all those funds use, you might think it’s an excellent free lunch. Well, it could be, but there are a few things to be careful of. More →

  • 25 May
    Building The Best Portfolio For The Upcoming Recession

    Building The Best Portfolio For The Upcoming Recession

    • Stocks will be hit badly. Low price earnings and high book values can provide some safety.
    • Bonds look much better than last year.
    • Alternative investments can be a jack-pot for your portfolio.

    Introduction

    Yesterday we discussed how a recession is imminent, especially if the trending down credit growth turns negative.

    The most important thing now for investors is to prepare for such an event. Today, we’re going to dig deeper into the recession-related investing risks as different asset classes will be affected differently. More →

  • 27 Apr
    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    • Positive sentiment alone has added 950 points to the S&P 500 in the last 5 years.
    • The S&P 500 has returned 12% in the last 5 years, but only 4.5% in the last 10 years and just 2.7% in the last 17 years. Don’t let current positive sentiment lead you to such terrible long term returns.
    • The opportunity cost might be significant, but the long term picture of not following the herd looks much better.

    Introduction

    I know that if I buy a stock with a price to earnings (P/E) ratio of 10 and stable future business prospects, my very long-term return should be around 10%, plus inflation and eventual growth. If I buy a stock at a P/E ratio of 5, my returns will be around 20%, while if I buy a stock with a P/E ratio of 20, my returns will be around 5%. It’s as simple as that, in the long term. More →

  • 14 Apr
    Debunking Bad Investment Advice: Don’t Buy That Wonderful Brand At Just Any Price

    Debunking Bad Investment Advice: Don’t Buy That Wonderful Brand At Just Any Price

    • As wonderful as a company may be, the price paid for it is the determining factor for investment returns.
    • Many companies with great brands have seen their stock prices appreciate while their fundamentals stagnate.
    • Buffett has mostly bought at wonderful prices. Keep that in mind when investing.

    Introduction

    It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

    Many asset managers and financial advisors have Buffett’s quote on their promotional materials and web pages. However, more arguments can be made against the above statement than for it. We’ll go through some examples to help prevent you from falling into the trap of paying what the market thinks is a fair price for companies that might not be that wonderful after all. More →

  • 13 Apr
    Why You Should Consider Defined Benefit Pension Plans Before Investing

    Why You Should Consider Defined Benefit Pension Plans Before Investing

    • By adjusting a few percentage points on expected returns and discount rates, unfunded amounts become huge.
    • It’s essential to check the possible future pension obligations of your investments as they can easily cost you your returns. I’ll show a possible impact on General Electric.
    • If you have a defined benefit plan of any kind, don’t take it for granted. The only certain retirement income is the one you provide by yourself.

    Introduction

    A good way to see what’s going on in the pension fund industry is to analyze the 50 largest defined pension plans of the S&P 500 through Goldman Sachs’s 2016 Pension Review. More →

  • 12 Apr
    How To Prepare For Anything The Economy Throws At You

    How To Prepare For Anything The Economy Throws At You

    • All stocks will rise with a rising tide, therefore it’s wise to buy those stocks that won’t fall off a cliff in a recession.
    • The usual suspects—like consumer staples, utilities, and healthcare—are good ideas, but not at any price.
    • Bonds are close to becoming a win win situation.

    Introduction

    Yesterday we analyzed the FED’s latest meeting minutes, and saw how when the FED applies historical probability calculations to their own estimations, the result is that anything can happen.

    The FED itself stated that, in the next few years, economic growth could be anywhere between -0.5% and 4%, unemployment between 2% and 7%, and inflation between 1% and 3% with a 70% confidence interval. A 70% confidence interval means that there is a 30% chance economic indicators end up outside the above mentioned ranges. More →

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